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An alternative explanation for the resource curse: the income effect channel

  • Ali Alichi
  • Rabah Arezki

This article provides an alternative explanation for the ‘resource curse’ based on the income effect resulting from high government current spending in resource rich economies. Using a simple life cycle framework, we show that private investment in the nonresource sector is adversely affected if private agents expect extra government current spending financed through resource sector revenues in the future. This income channel of the resource curse is stronger for countries with lower degrees of openness and forward altruism. We empirically validate these findings by estimating nonhydrocarbon sector growth regressions using a panel of 25 oil-exporting countries over the period 1992 to 2005.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 22 (August)
Pages: 2881-2894

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Handle: RePEc:taf:applec:44:y:2012:i:22:p:2881-2894
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  1. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  2. International Monetary Fund, 1999. "Macroeconomic and Sectoral Effects of Terms-of-Trade Shocks: The Experience of the Oil-Exporting Developing Countries," IMF Working Papers 99/134, International Monetary Fund.
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  8. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
  9. Kamilya Tazhibayeva & Aasim M. Husain & Anna Ter-Martirosyan, 2008. "Fiscal Policy and Economic Cycles in Oil-Exporting Countries," IMF Working Papers 08/253, International Monetary Fund.
  10. Tanzi,Vito & Schuknecht,Ludger, 2000. "Public Spending in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521662918, October.
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